Defunct online lender Integrity Advance has filed a lawsuit accusing the Consumer Financial Protection Bureau of launching an enforcement action against the company without the legal authority to do so.
Filed on Monday in a District of Columbia federal court, the lawsuit states that the CFPB's action is illegal because Integrity Advance stopped offering loans before Richard Cordray became CFPB's lawful director.
The CFPB sued Delaware-based Integrity Advance in November 2015 for allegedly deceiving consumers about its loan costs. The CFPB charged the online payday lender and its chief executive, James Carnes, for not fully disclosing that charges would continue accruing after a borrower defaulted on a loan and for automatically debiting borrowers’ bank accounts after they stopped authorizing withdrawals.
The CFPB said that it filed the suit as an administrative law proceeding, which is a judicial process handled at the CFPB. The amount of redress and any civil money penalty would be determined by an administrative law judge with the CFPB director having the final say.
The CFPB in the lawsuit claimed Integrity Advance offered loans of $100 to $1,000 between May 2008 and December 2012 to consumers who applied by entering their personal information into a lead generator website. Integrity Advance had certain terms in its loan contracts that allowed a defaulted loan to roll over four times, accruing charges each time, before it applied any payment to the principle balance.
"However, the costs on the disclosures were based on the assumption that the loans would not roll over and would instead be repaid in full by the first payment," the CFPB said. "Integrity Advance never informed consumers of the total costs of their loans if those loans were rolled over, even though the contracts were set up to roll over automatically." Because of this, some consumers ended up paying for charges that were more than double the amount they first borrowed, amounting to $765 in charges for a $300 loan, the CFPB said.